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13.5. Other Anti-Avoidance Rules

Tax Information Exchange Agreements (TIEAs)

Tax Information Exchange Agreements (TIEAs) provide for the exchange of information on tax matters and Guernsey has concluded TIEAs with 61 countries, including Anguilla, Argentina, Australia, Austria, Bahamas, Botswana, Belgium, Brazil, British Virgin Island, Bulgaria, Bermuda, Canada, Cayman Islands, Chile, China, Costa Rica, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Hungary, Iceland, India, Indonesia, Ireland, Italy, Japan, Korea, Latvia, Lesotho, Lithuania, Macao, Mauritius, Mexico, Montserrat, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovakia, Slovenia, South Africa, Spain, St Kitts &Nevis, Sweden, Swaziland, Switzerland, Turkey, Turks & Caicos, the United Kingdom, the United States of America and Uruguay.

Exchange of Cross-Border Tax Rulings

Guernsey has agreed to exchange tax rulings with eligible jurisdictions from 1 April 2017 in implementation of BEPS Action 5. A specific ruling can be exchanged with a relevant jurisdiction if it is international in nature and affects the relevant jurisdiction. The exchange is possible if there is an agreement between Guernsey and the relevant jurisdiction providing for the spontaneous exchange of tax information. The agreement can be a tax information exchange agreement (TIEA), a tax treaty, or the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Exchange is also required for “historical” rulings granted:

  • On or after 1 January 2015 but before 1 April 2017; or
  • On or after 1 January 2012, but before 1 January 2015, provided they were still in effect as on 1 January 2015.

Effective 17 March 2022, Guernsey suspended all forms of tax cooperation with Russia. Guernsey and Russia were both parties to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters effective July 2015.

Financial Account Information Reporting and Exchange

Guernsey acceded to the OECD Mutual Assistance Convention as amended and the convention entered into force for Guernsey on 1 August 2014. Effective September 2017, Guernsey has signed the Common Reporting Standard (CRS) Multilateral Competent Authority Agreement and adopted measures to implement the automatic exchange of financial account information in accordance with the global standard for exchange of information developed by the OECD under the CRS. Further, Guernsey concluded an Intergovernmental Agreement (IGA) with the United States in December 2013 to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).

Economic Substance Requirements

Effective 1 January 2019, Guernsey introduced the substance requirements regulations which prescribe the criteria that must be met by certain companies resident in Guernsey to ensure that real economic activity is being carried on in Guernsey in respect of the profits and income of the company.

  • A resident company including a resident company which is exempted from tax under Section 3 of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (effective 1 August 2019) with income from carrying on business of any of the following classes or descriptions (‘relevant activities’):
    • Banking;
    • Insurance;
    • Fund management;
    • Financing and leasing;
    • Headquartering;
    • Shipping; and
    • A distribution and service center;
  • A resident company with income from intellectual property assets (‘IP company’);
  • A resident company that is a pure equity holding company with income from that activity;
  • Self-managed collective investment vehicle (effective 1 October 2020); and
  • Resident partnerships (including general partnerships, limited partnerships, limited liability partnerships and foreign partnerships whose place of effective management is in Guernsey). New partnerships are required to comply with the regulations effective 30 June 2021 and existing partnerships have to comply starting from accounting period 1 January 2022. Under the measures of the law, resident partnerships must satisfy the economic substance test in relation to any relevant activity carried on by or through it for which it has gross income. However, a resident partnership is not required to satisfy the economic substance test in relation to a relevant activity carried on by or through it if:
    • all of the partners in the partnership are individuals who are subject to income tax in Guernsey; and
    • during the relevant financial period:
      • the resident partnership is not part of a multinational group; and
      • the resident partnership does not undertake business activities outside of Guernsey.

Effective 1 August 2019, core income generating activities in relation to intellectual property assets include:

  • Research & development- for patents and similar assets;
  • Marketing intangibles such as trademarks or any form of marketing, branding and distributions activities; and
  • In certain cases, strategic decision making and risk management/bearing activities (subject to certain exceptions) involving (i) development and exploitation of intellectual property assets; (ii) third-party acquisitions and subsequent exploitation and protection of the intellectual property assets; and (iii) trading activities leading to exploitation of intellectual property assets and generation of revenue from third parties.

Further, a company carrying on relevant activities and an IP company is considered to have economic substance on the fulfillment of the following conditions:

  • It is directed and managed in Guernsey;
  • It carries on core income-generating activity in relation to that relevant activity in Guernsey;
  • There is an adequate level of appropriately qualified employees in Guernsey proportionate to the level of that relevant activity carried on in Guernsey, whether or not employed by it or another entity and whether on temporary or long-term contracts;
  • There is an adequate level of operating expenditure in Guernsey proportionate to the level of that relevant activity carried on in Guernsey; and
  • There is an adequate physical presence in Guernsey (including, without limitation, offices and/or premises) proportionate to the level of that relevant activity carried on in Guernsey.

A pure equity holding company is considered to have economic substance on the fulfillment of the following conditions:

  • It complies with all obligations applicable to it under the company law of Guernsey; and
  • For holding and managing the shares or equitable interest:
    • there are adequate level of persons in Guernsey proportionate to the level of activity carried in Guernsey; and
    • there is an adequate physical presence in Guernsey (including, without limitation, offices and/or premises) proportionate to the level of activity carried on in Guernsey.

Effective 1 October 2020, the scope of the economic substance requirement regulation is extended to include a self-managed collective investment vehicle. A self-managed collective investment vehicle is a company which is a collective investment vehicle within the meaning of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and which has no other person or body conducting fund management in respect of it, and for this purpose, fund management means exercising any managerial function in relation to an investment or in relation to the assets underlying an investment. A self-managed collective investment vehicle is subject to the substance requirements regulations:

  • In all respects as if it carried on the relevant activity of fund management and received income from that relevant activity; and
  • Whether or not it has been granted an exemption from tax by the Director under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989.

In this regard, the government issued in April 2019 a joint guidance with Jersey and Isle of Man on the new substance requirements. The guidance provides an overview of the economic substance requirements, information on the relevant sectors, directed and managed requirements, and other matters. An updated guidance was issued in November 2019 to cover additional sectors (such as insurance, intellectual property, high-risk intellectual property and shipping), update existing guidance on other sections and provide further clarifications on funds, CIGA and other aspects. Additionally, in January 2021, another joint guidance was issued providing additional guidance on the scope and application of the economic substance legislation regarding partnerships.

Companies are required to report to the Guernsey revenue services electronically for each accounting period whether they are subject to the substance requirements and whether they have met the same. Resident companies having no income from the business activity carried on by them during the accounting period are not required to file the report. On failure to comply with the requirements, penalties of up to GGP 100,000 (up to GGP 150,000 in case of non-registered partnerships) may be imposed, information on the company may be exchanged with other relevant jurisdictions and notice may be issued for striking off the name of the company from the register of companies. In case of limited partnerships or limited liability partnerships (LLP), a notice may be issued for striking off the name of the limited partnership or the LLP from the respective registers.  

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, Guernsey has clarified that a pragmatic approach will be taken while assessing whether the economic substance requirements have been met by a company during periods when government restrictions were in place (including restrictions imposed by governments in other jurisdictions).

The tax authorities have provided a temporary framework for COVID-19 related adjustments to the economic substance guidance as follows:

  • Restrictions will only impact the ability of companies to comply with the directed and managed test of the economic substance requirements and companies should continue to meet the other economic substance tests;
  • For review, companies should maintain and retain relevant records that show what their policy was in respect of restrictions on travel for the company officers which should provide objective and sufficient evidence of specific circumstances hindering compliance with the economic substance requirements; and
  • If an exchange of information is required with the EU Member States on a company as a result of its failure to comply, the exchange would include information that companies provided on the impact of COVID-19 measures.

The temporary framework outlined above will be in place till the travel restrictions continue.

Ultimate Beneficial Ownership Disclosure

Effective 15 August 2017, resident entities in Guernsey are required to maintain and submit a register of beneficial owners, subject to certain exceptions.

Ultimate beneficiaries include individuals or corporate beneficial owners that directly or indirectly hold at least 25% of the capital or voting rights of the entity or otherwise exercise ultimate control.

Where there is a change in ownership information, altering the percentage of participation, the change should be reported within 21 days.